To Pull Out Or Not: The Dilemma Of Foreign Companies In Zim

BUSINESS has to be apolitical. This is true in principle. In practice, it is a different story altogether.

 

It is extremely difficult to remain untainted by politics especially if the business is big, is involved in key sectors of the economy and is required to deal with senior government officials. The situation gets more complicated if a company operates in places other than the country of origin as is the case with multinationals. They are answerable to head offices in the parent country while having to operate outside it. A conflict between the country of origin and the host nation often puts them in a quandary.

The recent calls by some Western countries for transnational companies to consider pulling out of Zimbabwe must have caused headaches to the managements of those firms. For companies that have been operating in the country for decades this is inconceivable.

The downturn in the economy has a history spanning almost a decade and companies have been hoping for a return to political and economic stability for a long time. Over this period some companies have fallen by the wayside while others have disinvested and emigrated to other countries. Foreign companies that have stayed the course this far seem to have long-term plans which go beyond the politics of the day.

It is not clear how far the companies will give in to pressure from their home countries. The public media lately reported that plans are on course to give any abandoned businesses to empowerment groups and investors from “friendly” nations. Most of these companies invested a lot in their businesses and with Africa seen as a growth continent they are likely to treat the suggestion to move out with a pinch of salt. They know that surrendering now will mean losing everything that they laboured for, for years.

Among the worst affected companies are those of British origin which are said to be under considerable pressure from their politicians while at the same time they are being touted as prime targets under the Indigenisation Act.

British Premier Gordon Brown allegedly advised the companies to “reconsider” their operations in Zimbabwe. Brown’s Minister for Africa was more plainspoken pointing out that British companies might be forced to leave Zimbabwe as part of the toughened sanctions.

Besides the European companies, the country also hosts several South African companies. They include Pick and Pay which has a 25% stake in TM supermarkets, Standard Bank which operates in Zimbabwe as Stanbic Bank, and mining houses Impala Platinum (Zimplats) and Metallon Gold which runs several gold mines in the country. The activities of all these companies have suffered as a result of the harsh operating environment but none has openly talked about pulling out.

On the contrary some have plans to expand their businesses. Recently, a fuel company Engen Petroleum is reported as having acquired Shell Petroleum’s assets in a move described by the local public media as a vote of confidence for the country.

Pulling out of the country now will also present opportunities for their competitors to come in. Besides, the high political risk will mean that the assets will have to be sold at a huge discount at best while the government can easily expropriate them under the indigenisation programme if their owners abandon them.

The costs of re-establishing the business when the economy improves can be much more than those of sitting it out until good days return. Many investors are of the view that the economy will rebound in a few years and companies established in the country already will benefit. It therefore makes sense to them to wait for the recovery despite a possibility that it may be sometime before it actually occurs.

Companies which were operating in South Africa during the apartheid era found themselves in a similar, if not worse, situation than that obtaining in Zimbabwe. Multinational firms were accused by locals and outside protesters of supporting the apartheid regime. Persistent anti-apartheid protests forced the likes of Barclays to disinvest from South Africa in 1986. With hindsight, that decision turned out to be costly given that the company was well established with a large countrywide branch network.

The post-apartheid era saw the South African economy booming with banks benefiting from growth in lending business and increased deposits from the expanding black middle class. Barclays had to pay a heavy price to return to South Africa. It paid US$5,5 billion to acquire 60% of Absa in 2005 to boost its then struggling operations in the rainbow nation. Iconic former South Africa President Nelson Mandela could not express it any better to Barclays in 1995 than to say, “You should never have sold.”

Ironically Barclays is in the thick of things once again but this time in Zimbabwe with pressure coming from the UK for the bank to pull out. Whether it will bow to pressure or will make a business decision to stay on remains to be seen. Either way, the choice is a difficult one for Barclays, and other similarly placed foreign companies to make.

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